The great depression 5 of 6 Temporary stock market boom

The policy was designed to suck in more gold from overseas so that the country would have enough reserves of gold to finally support the value of its entire economy. However, Britain suffered from its overvalued pound while France which attracted less gold has an undervalued currency. During the early part of the 1900’s the United States of America was a great exporter of goods unlike what it has become today as the greatest importer and consumer. The UK was not able to return to the gold standard by itself without the aid of the US. They did a lever tandem to which the US reduced its interest rates and the UK increased theirs.

This is how the flow of gold would materialize under the standard; International investors sold US dollars for gold, all the gold would be shipped to the UK in exchange for Pounds which would then be used to buy UK assets.
The system worked well to suck in as much gold as the UK needed to return to the gold standard. If you look elsewhere, since gold can’t be created out of simple materials, most countries are suffering shortage as most of the gold flowed into the UK. In the US the drain of gold and an expansionary stance was in favor with the current minor recession the country is under. France held a significant amount of British pound reserves. To reinforce their supply of gold, It began to dump Pounds for gold while it is transitioning back to the gold standard.
In the US, it increased its discount rate from 3.5% to 4% to slow down the booming stock market.

The flow of gold is poised to drain British reserves; it made agreements to France to temporarily halt the massive conversion of the British pound for gold.
It further drained countries out of gold because of the booming US stock market and at the same time, high US interest rates. Massive shipments of gold flowed out of Britain as well as Germany into France and the United States. Countries that refused to deflate price levels before returning to the gold standard simply had no way to attract gold and its economy began to crumble. The contraction is already set in central Europe and it further deepened it when Germany, Hungary and Austria froze foreign deposits. With this in place, smaller countries in Europe began looking for consolidation by dumping their reserves of the British pound for gold. Combined with the outflow of gold from Britain to the much more attractive stock market of the US, the French needing more gold and a weakening commodities demand from central Europe, Britain’s economy is drained and left in a weakened state. Bankruptcies in Germany further accelerated the drainage of gold from Britain as they too converted Pounds for gold. With the British Pound out of the picture, only the American Dollar was left as the key international reserve currency. The entire world has their sights pointed on a wide open target the US dollar.

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